In what sense out the growth in the steady stateof solow model "exogeneous" ?. Briefly outline how some others models make such growth endogenous?
In the Solow model, the growth in the steady state is considered exogenous because it is determined by factors outside the model itself. These factors include technological progress, population growth, and the rate of savings and investment.
However, some other models make growth endogenous, meaning that it is explained by factors within the model. These models introduce additional mechanisms and interactions to explain how growth is generated.
One such model is the endogenous growth theory, which emphasizes the role of technological progress as an endogenous variable. In these models, investments in research and development (R&D) and knowledge accumulation are key drivers of long-term economic growth. Technological progress is not simply assumed to happen exogenously, but rather it is endogenously determined by factors such as innovation, education, and spillover effects.
Another example is the neoclassical growth model augmented with human capital. In this model, human capital, which captures the skills and knowledge of workers, is considered an important factor in the production process. Increased investments in education and training can lead to higher productivity and economic growth.
Furthermore, some models incorporate the role of institutions and policies in promoting growth. These models consider that the quality of institutions, such as property rights protection, rule of law, and efficient public administration, can have a significant impact on economic growth. By creating a favorable environment for investments and innovation, institutions can generate endogenous growth.
Overall, endogenous growth models seek to explain the sources of sustained economic growth within the model itself by considering various factors such as technological progress, human capital, and institutional development.
In the Solow model, the growth rate of the economy is determined by exogenous factors, meaning factors that are external and not influenced by the model itself. These exogenous factors include technological progress, population growth, and increases in the labor force.
However, some other models go beyond the exogenous growth assumption of the Solow model and make the growth endogenous. Endogenous growth models consider factors that are internal to the model and have the potential to drive sustained economic growth.
There are several ways in which other models make growth endogenous. Here are a few examples:
1. Human Capital: Some models introduce the concept of human capital, which represents the knowledge, skills, and education of the workforce. These models argue that investments in human capital can lead to productivity growth and economic expansion.
2. Innovation and Research and Development (R&D): Other models emphasize the role of innovation and technological progress as engines of growth. These models suggest that investments in R&D can lead to new ideas, inventions, and technological advancements, which drive long-term economic growth.
3. Endogenous Technological Progress: Some models incorporate mechanisms that endogenously generate technological progress. These models argue that technological advancements are not exogenous but can emerge as a result of economic activity. This can be achieved through learning-by-doing, knowledge spillovers, and economies of scale.
4. Institutions and Policies: Certain models highlight the role of institutions and policies in promoting economic growth. These models argue that well-functioning institutions, such as property rights, rule of law, and effective governance, create a conducive environment for investment, innovation, and economic development.
These are just a few examples of how other models make economic growth endogenous. Each model takes a different approach to explain the mechanisms behind sustained growth, incorporating various factors and dynamics within the model itself.